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September International Capital Flow Detail
In September, foreigners purchased $55.7 billion of domestic securities, offset by $15 billion of foreign purchases by US residents, for a net capital inflow of $40.7 billion. The bulk of foreign purchases was conducted by private investors ($44.8 billion) and the balance of $10.9 billion was by foreign official institutions. Segregated by product, foreigners purchased $44.7 billion in Treasurys ($19 billion official, 25.7 billion private), sold $1.7 billion in MBS/Agencies ($6.5 billion purchased by privates and $8.3 billion sold by banks), sold $2.9 billion in corporate bonds (entirely at the behest of private entities), and purchased $15.7 billion in stocks, once again almost entirely by private entities.
An LTM analysis of TIC indicates why the Fed is still critical in maintaining a visible bid under the MBS market. In the latest twelve months, foreigners purchased $330 billion in Treasuries, sold $17 billion in corporate bonds (surprising, considering the massive inflows into corporate funds domestically), purchased a whopping $107 billion in stocks and sold $126 billion in Agencies. Take the Fed out of the picture and watch the rate on those 30 Year Fannies explode.
The top holders of US Treasuries were the usual suspects: China ($789.9 billion, $1.8 billion increase sequentially), Japan ($751.5 billion, $20.3 billion increase) and the UK ($249.3 billion, $22.4 billion increase of which $17.3 billion was due to hedge fund increase headquartered in the Channel Islands).
Total purchases by the Big 3 increased by $13.2 billion to $38.2 billion at the same time as the yield on the 30 Year decreased from 4.18% to 4.05%. And while China reduced the rate of LT TSY purchases (from $15.4 to $10.7 billion), Japan really stepped on the accelerator, buying an additional $21.6 billion in September.
In the Treasury Bill category, with rates declining to 0.12% for the 3 Month On The Run from 0.13%, virtually every Big 3 holder sold, except once again, for most likely what were US-based hedge funds, which acquired $17.3 billion, more than accounting for the MoM increase in Bill purchases to $6.4 billion. China sold $8.9 billion in Short-Term USTs, while Japan offloaded $2.2 billion.
The following table summarizes the Top 10 buyers and sellers of US Assets in September:
A granular view of buyers by various asset classes is presented by the table below.
Lastly, if one assumes that Hedge Funds were the entities represented by Channel Islands and the Caribbean Countries (traditional locales of HF incorporation), the following picture emerges: in September hedge funds bought $12 billion of US equities, $3 billion in MBS/Agency (presumably PIMCO had not notified the world of its MBS disposition occurring at the same time), $3 billion in Long-Term USTs and $12 billion in Short-Terms, presumably indicative of the negative rates demonstrated recently by 3 Month UST Bills.
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That would mean my december spx puts are toast. Say it isn't so.
Compared to Augusts $28.6 billion(http://www.ustreas.gov/press/releases/tg321.htm), "net foreign purchases of long-term securities" increased considerably in September.
They're ramping back up. It is inevitable that the fast money will fly once again to the greenback.
February 2010 will mark the turn of the dollar. Be ready.
I agree, but at the moment few think that's possible.
Which is one key reason while it will happen.
Most didn't see the crash of 9/08 happen either, and are still under the delusion that they understand what's going on in the Economy.
the real cost of keeping RE values artificially up:
http://www.nytimes.com/2009/11/22/business/22loans.html?_r=1&ref=business
cost to the US taxpayers that is.
I think this is a good deal all around. If these loans default then the taxpayer benefits since the original holder of the securitization has already taken the bulk of the loss in valuation.
Not like the Gov't programs in which virtually no principal has been written down prior to going on the FHA's balance sheet.
The latter are much more likely to fail than the former, and they will, and the FHA wil require their bailout, but mostly because of the latter, not the former.
The Treasury Bubble has proved to be the greatest of all time.
Basically, a 26-year bull market, the longest on record for any financial instrument or commodity, bar none.
Have we seen the blow-off-top already?
From 1986 til 2001 the ten year yield and gold price were tracking each other. 2001 gold broke out upwards.
The burst of that bubble will be interesting to watch to say the least.
On the hot topics of the day...It is my hypothesis that we cannot have hyperinflation until the Treasury bubble deflates. Only then will we have a world with a flood of US fiatcos with nowhere to go.
I look forward to you continuing to hit this issue hard. Biggest. Bubble. EVER.
Speaking of the $800 billion owed to China, this is brilliant:
http://www.nbc.com/saturday-night-live/video/clips/china-cold-open/1178451/
That. Was. Awesome.
TD, please post this for everyone to enjoy!
Very helpful information, thanks for sharing this TD.
Interesting history, the panic of 1873, also known as the "Long Depression".
http://en.wikipedia.org/wiki/Panic_of_1873
http://en.wikipedia.org/wiki/Long_Depression
Cheers!
Who in his right mind would lend a cent to the USA or any other Government for that matter ????
Honestly Tyler, I think the powers that be may be right, if you keep sharing all this truth, my brain might actually explode (or implode, whatever the case may be).
oh hell. they dumped 1.7B in MBS...ha ha ha , geez, i wonder who bought that junk? oh i forgot. the FED bought it and then we taxpayers are the backstop. how silly of me to forget....
Capital flow?
You don't need a lot to bump the overnight futures do you?
Look at that, tiny amount of buying and off they are let go to the moon on the back of any poor shorts that had tight stops, with no interference by those who are the big players of course... they let it go to where they want it to go
Well its good for these international investors - perhaps they want to help the FHA on its new 3% down mission for ALL !! FHA approved signs all over Chicagoland!!! The New Normal thanks to Uncle Barney !! There will be No Double Dip Recession and No Asset Bubbles!!